We have trimmed our global growth projections for 2014 and 2015 to 2.6% and 2.8%, a sluggish outlook by the standards of past cycles. The 2014 downgrade reflects some base effects from a poor first half and modest cuts to H2 in the US and Eurozone. For 2015 we believe structural headwinds will persist, not least a weaker supply side performance in the US due to adverse trends in demographics and productivity. We see past disappointments on US growth as more fundamental than just a consequence of unfortunate events.

Such an outlook means that US unemployment falls further and inflation is likely to pick up in 2015 as cost pressures build, prompting the Federal Reserve (Fed) to start to normalise rates from mid-year. The Bank of England (BoE) is likely to join the Fed in tightening, but the European Central Bank (ECB) and Bank of Japan (BoJ) are expected to increase stimulus.

Our scenario risks remain tilted to the downside with Eurozone deflation and a deterioration in the Russia-Ukraine crisis the greatest ‘known unknowns’.

Europe: downside risks rise

Weak Eurozone growth and weaker inflation are a concern, leading us to downgrade our growth and inflation forecasts. However, markets appear to be buoyant with speculation that the ECB might unveil its own quantitative easing (QE) programme.

The UK continues to buck the trend in Europe with ongoing strong growth. It may see a slight slowdown towards the end of the year as pay growth continues to be weak and the housing market slows, however, the Bank of England is likely to continue to prepare markets for eventual increases in interest rates.

EM forecast update: politics and policy

A mix of policy and politics have driven our revisions to EM forecasts this time, with sanctions in Russia, elections in Brazil, intervention in China and reform efforts in India all playing a part.

In this month's Olympic-themed Viewpoint, we discuss the race for global growth, the eurozone’s bronze medal performance and the commendable, but not quite Olympic-standard, improvement in emerging markets.

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